What Is an Acquirer? Meaning and Classification

What Is an Acquirer?

An acquirer is an entity that obtains ownership of a company or a business relationship through a friendly or hostile transaction. These transactions are often mergers, acquisitions, takeovers, or other structured agreements. An acquirer typically buys a company and gains ownership through a majority purchase of the target company's shares. An acquirer can also be a financial institution that obtains ownership of a merchant account to allow them to manage and service a merchant's bank account.

Key Points

• An acquirer can be a corporate acquirer or a merchant acquirer.
• A corporate acquirer is a company that gains ownership of another company or a business relationship through an agreement.
• A merchant acquirer is a merchant bank that is used by a merchant to process electronic payments for their customers.
• Corporate acquirers buy other companies because they believe they will achieve some benefit. They do this through cash purchases, stock purchases, or stock swaps.
• A merchant acquirer facilitates electronic payments through its merchant network and manages a merchant account's transactions, settlements, and deposits.

Understanding an Acquirer

As mentioned above, an acquirer is the individual or company that makes an offer to take over another entity, such as a financial interest, company, or business relationship. An acquirer may seek out a target and act to take it over, which can include:

• Merger: Mergers are agreements where the target voluntarily chooses to be purchased and integrated into the acquiring entity.
• Acquisition: This involves making a direct purchase to take over. Acquisitions can be friendly, where the target does not resist being taken over.
• Takeover: This type of transaction is often hostile and unwanted. This means the target takes steps to avoid being taken over. To be successful, the acquirer may opt to buy a majority of the company's shares to gain control and voting rights.

There are numerous reasons why a company would want to acquire another. These can include reducing competition, creating synergy, and gaining access to new markets.

The acquirer relationship can vary depending on the type of agreement that is established. Corporations may acquire another company through a negotiation process that allows them to pay an agreed-upon price to gain ownership of the other company and integrate it into their existing business operations. This may be in the form of a cash purchase, stock purchase, stock swap, or a combination of all three.

An acquirer can be a financial institution that partners with a merchant to complete electronic payment transactions and the deposit process. For instance, a retail store may want to set up an electronic payment system so their customers can pay with a credit card or a phone. The retailer would hire a merchant acquirer, also known as a merchant bank, to control the merchant account and accept deposits from customer payments.

The target company of a hostile takeover may take measures to avoid being acquired, such as using a "poison pill" or "golden parachute."

Some Forms of Acquirers

Corporate Acquirer

In a corporate acquisition, the acquirer is the company that buys another company for a specified price. Corporate acquisitions are typically agreed upon by both parties. They allow the acquiring company to have complete control over the target and integrate it into their existing business operations.

In an acquisition, the acquiring company believes that it will profit from buying another company and absorbing its profitable components while discontinuing its inefficient parts. In this way, they also believe that they are improving the company that they are purchasing.

Acquirers of public companies often see their stock price drop in the short term when a deal is made. This drop is often due to the uncertainty of the transaction and the high price the acquirer has to pay.

Merchant Acquirer

A merchant acquirer acts as a third-party partner for a merchant. Merchants must partner with a financial institution to process transactions and receive electronic payments. The acquirer is often the bank services provider that manages the electronic deposits from customers that are paid into a merchant account. This acquirer can also be the acquiring bank since they facilitate a merchant's payments.

Each time a debit or credit card is used to make a payment, the merchant acquirer must be contacted for processing and settlement. The merchant acquirer can decide the types of payments they will accept for processing.

Acquirers typically have a processing relationship with a network of vendors, which typically includes the primary processors like Visa, Mastercard, and American Express. Some merchant acquirers may only have network rights with a single branded card processor, which could limit the types of branded cards a merchant can accept.

Acquirers charge merchants various fees that are detailed in their agreements. Most acquirers charge per-transaction fees and monthly fees. An acquirer's per-transaction fees include costs associated with network processing. Monthly fees may be charged to offset various service aspects of the account.

What is an acquisition? An acquisition is a type of business transaction in which one entity purchases another. For example, an acquisition can involve the purchase of a company. In other cases, the acquiring entity may purchase one or more assets. Acquisitions can be friendly, in which both parties agree to the deal, or they can be hostile, in which the acquirer takes over the target without the target's consent.

What is a target company? The term target company refers to a company that an acquirer wishes to take over. The target may be the subject of a friendly deal. In this case, the target agrees to be taken over through a merger or an acquisition. In other cases, they may be the subject of a hostile takeover, meaning the target does not wish to be taken over by the acquirer. Some targets may choose to use defensive strategies to prevent a takeover, such as a "poison pill" or a "golden parachute."

What is a poison pill? A poison pill is a defensive strategy that a target company can use if it becomes the subject of a hostile takeover. The target, which is often a public company, has the goal of preventing an acquirer from gaining control by accumulating a majority of shares in the target company. The poison pill places an ownership limit. If someone acquires this percentage of shares, the company can issue new shares and dilute the potential acquirer.

Conclusion

An acquirer is any individual or company that purchases assets or a company. For example, an acquirer may choose to buy equipment from another individual. Or it may be a company that wants to buy a competitor to gain access to new markets. This party typically offers cash or other financial incentives to the target in order to make the takeover.